A shot across the bow

The forces are gathering that could make for a serious debate next year about charging sales tax on web purchases.

I don’t think Congress is going to pass an online sales tax bill this year. For one thing, there are many other pressing issues for lawmakers to take up in the few months left before they effectively call it quits in early October to run for reelection. For another, I don’t see many House members wanting to go before the voters having just supported an extension of sales tax to online purchases.

But that doesn’t mean yesterday’s introduction of the so-called Main Street Fairness Act can be brushed aside by online retailers. My estimation is that the political forces are coming together to bring this question to a head in Congress, where it belongs (as opposed to being taken up one by one by the states, as we’ve seen happen in the past year.)

Retail chains have long lobbied for all online purchases to be subject to sales tax, because the big chains have stores in just about every state and thus have to collect sales tax on items they sell from their web sites. (The Supreme Court has ruled that only retailers with a physical presence in a state, such as a store or warehouse, can be required to collect and remit sales taxes.) Since the chains have to charge consumers sales tax, they know they are at a disadvantage in competing with web-only retailers that don’t charge tax.

But now the retail chains have been joined by state governments that are billions short of balancing their budgets as a result of the recession-induced plunge in tax revenue of all kinds. The Obama administration can’t be happy with all the layoffs in state government and service cutbacks. Just as one example, Detroit recently closed 77 parks to save money. That doesn’t sound like the kind of hope millions of Americans were looking for when they voted for Obama.

I’m betting there will be a serious debate in Congress over passing an online sales tax bill in 2011, after the midterm elections and more than a year before the next presidential election. Meanwhile, here at Internet Retailer we’re trying to figure out whether adding sales tax to an online purchase makes much difference in whether consumers buy. We’ll be digging into real data, and reporting on what we find in an article by Paul Demery in the August issue of Internet Retailer magazine.